BOHICA NWA
Following United's lead, the folks at Northwest get ready to grab their ankles and enjoy the ride:
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Northwest Seeks Sway Over Unions
By SUSAN CAREY
Staff Reporter of THE WALL STREET JOURNAL
October 13, 2005; Page A5
Northwest Airlines asked for judicial approval to void its labor contracts if its employees don't quickly agree to about $900 million in additional concessions the carrier says it needs to avoid liquidating.
Like UAL Corp.'s United Airlines and US Airways Group Inc. before it, Northwest is embarking on a power play afforded by the U.S. Bankruptcy Code: the ability to goad unions into voluntary givebacks by threatening them with potentially more onerous, court-imposed contract terms.
Northwest, the nation's fourth-largest airline by traffic and one of the most unionized, filed for Chapter 11 on Sept. 14, blaming high fuel costs, its inability to win concessions from most of its big unions and rising competition from discount carriers that are setting the pricing agenda in the domestic industry. No. 3 Delta Air Lines, which has only one major union, also sought bankruptcy protection that day. Both Northwest and Delta have said they will shrink, and Northwest in its court filing yesterday estimated its mainline capacity in next year's first quarter will be down 11% to 13% from the year before.
United, which remains in Chapter 11 after almost three years, and US Airways, which visited court protection twice since 2002, both used the threat of contract annulments to win huge savings from their employees. They and other airlines in Chapter 11 have cited a portion of the bankruptcy code known as Section 1113. That allows the carriers to make the case that the proposed contract rejections are necessary to permit their reorganizations. Northwest said it hopes it can reach agreement with its unions on new terms and didn't specify a deadline. The judge has discretion over timing, but the process could take less than two months.
United and US Airways ultimately jettisoned their underfunded pension plans, transferring the assets and liabilities to the Pension Benefit Guaranty Corp., a government pension insurer. Northwest, in its 171-page court submission yesterday, reiterated it wants to retain its pension plans, which also are deeply underfunded. But "if timely and adequate pension legislative relief is not obtained," the carrier said, "Northwest will be forced to seek termination of its...plans."
Northwest, based in Eagan, Minn., has said it needs a total of $1.4 billion in annual labor savings through a combination of pay cuts, new work rules, changes to medical coverage, reductions in holiday and vacation time and increased outsourcing. Retirees can expect to shoulder a larger share of their medical coverage, too, according to the court filing.
Northwest, which says it has the highest labor costs in the U.S. industry, already has shown how far it will go to reach that $1.4 billion target. In the aftermath of an Aug. 20 strike by its mechanics, the company imposed new contract terms on a smaller cadre of replacement workers now caring for its fleet, achieving the $203 million annual savings it had targeted from its mechanic work force.
With the economies wrung from the mechanics and with $300 million in annual givebacks already agreed by the pilots and salaried workers, Northwest needs about $900 million more. It envisions a second round of cuts from the pilots and salaried employees as well as deep givebacks from flight attendants, customer-service agents and ramp workers. In yesterday's court filing, Northwest also said it will ask most workers to take an extra 5% pay cut for the remainder of its time in Chapter 11.
A spokesman for the International Association of Machinists union, which represents 14,600 Northwest ramp workers, customer-service agents and clerical employees, said the union was prepared for the filing. "We're committed to reaching an agreement at the bargaining table," a union spokesman said. Capt. Mark McClain, chairman of the 5,100-member Air Line Pilots Association branch at Northwest, also said his group is ready to negotiate, having already agreed to 15% pay cuts. He said he would expect Northwest to want to reduce its costs, but some items it is asking for are "overreaching." The pilot added, "We don't feel like it's open-season on the contract."